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PETITIONER: INDIAN LINK CHAIN MANUFACTURES LTD.

       Vs.

RESPONDENT: THEIR WORKMEN

DATE OF JUDGMENT17/09/1971

BENCH: REDDY, P. JAGANMOHAN BENCH: REDDY, P. JAGANMOHAN VAIDYIALINGAM, C.A.

CITATION:  1972 AIR  343            1972 SCR  (1) 790  1971 SCC  (2) 759  CITATOR INFO :  R          1972 SC2332  (62,63)  RF         1977 SC2246  (16)  R          1978 SC1113  (24)  E          1980 SC  31  (13,19,25)  RF         1980 SC2181  (135)  R          1990 SC2047  (11)

ACT: Payment of Bonus Act, 1965, ss. 2(p) and 19(2)--’Settlement’ when terminated. Industrial Dispute-Settlement when  terminated--Consolidated wages ,fixed by Tribunal without linking dearness  allowance with living wage and without granting adjustments-Propriety- Bonus-Figures of depreciation and development rebate whether to  be  taken from income-tax assessment  order  or  balance sheet-For determining return on reserves figures of reserves at  beginning  of year  should  be  taken-Gratuity-Financial capacity How to be calculated when wage consolidated without indicating  how much relates to  dearness  allowance--Scheme whether fair and reasonable.

HEADNOTE: The appellant was registered as a public limited company  in or about 1956 and commenced production in or about 1958.  It employed  approximately 170 persons of whom 156  were  daily rated  workers-the latter being respondents in  the  present appeal.  In respect of certain demands raised by the workmen in 1962 there were conciliation proceedings in the course of which the parties arrived at an amicable settlement on April 5,  1963.   Thereby  they settled inter alia  Demand  No.  1 relating  to  wage  scales  and Demand  No.  2  relating  to Dearness Allowance.  The parties also agreed to discuss, the existing production bonus scheme and to finalise the same by the  end of June 1963.  The settlement was signed on  behalf of  the  parties and by the Conciliation  Officer.   However subsequently  there were again disputes between the  workmen and  the  employers  and these were referred  by  the  State Government  to the Industrial Tribunal on December 27,  1965 under  s.  10(A)(d) of the Industrial  Disputes  Act,  1947. Both  the parties being dissatisfied with the Award  of  the Tribunal filed appeals by special leave in this Court.   The questions that fell for consideration were : (i) whether  in

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view   of  the  absence  of  a  notice  of  termination   as contemplated  in  s. 19(2) of the Act the  settlement  dated August 5, 1963 continued to subsist and consequently whether the   reference   of  the  dispute  to  the   Tribunal   was incompetent,  (ii) whether the tribunal was wrong in  fixing consolidated  wages without linking dearness allowance  with cost  of living or granting adjustments in the  wage  scale; (iii) whether in the matter of determining available surplus the  Tribunal  was  justified  in  taking  the  figures   of depreciation  allowance  and  development  rebate  from  the balance sheet and not from the income-tax assessment  orders in  which  the  figures were higher; (iv)  whether  for  the purpose of determining the return on reserves the figures it the  end of the year or the beginning of the year had to  be taken; (v) whether the Tribunal was right in its  conclusion that  the  financial position of the company  justified  the framing of a scheme of gratuity; (vi) whether in View of the fact  that the Tribunal had prescribed a  consolidated  wage without  indicating what portion of the wage was  the  basic wage and what portion the dearness allowance, the payment of gratuity  based  on  an average of the  basic  wages  of  an employee  exclusive of dearness allowance was impossible  to implement; (vii) whether the gratuity scheme was incongruous because  those who retired were given larger  benefits  than those who were retrenched. 791 HELD : (i) Reading s. 19 with the definition of ’settlement’ in  s. 2(p) of the Industrial Disputes Act it  would  appear that a settlement will ensure for the duration of the period for  which it has been agreed to between the parties and  if no  period is agreed upon, for a period of six  months  from the date on which the memorandum of settlement of-dispute is signed  by  the parties and where it is put an end to  by  a notice in writing it will continue to be operative until the expiry  of two months from the date of which the  notice  is given.  It would appear that even where an agreement is  for a  fixed period it will not continue to be binding  for  the duration  of  the period of settlement but  thereafter  also until it is terminated by a notice in writing and even  then it will continue for a period of two months from the date of such  notice.  While no doubt it is true that a notice  must be   in  writing,  such  a  notice  can  be  inferred   from correspondence between the parties. [798 A-C] In  the  present case the management had in a  letter  dated 20th March 1965 addressed to the Additional Commissioner  of Labour, Bombay, admitted that no settlement or award was  in existence,  the  reference, of the Industrial  Disputes  was made only after that.  It was not a satisfactory explanation of  that  categorical  statement that it was  made  under  a mistake.   The said letter must be deemed to be a notice  of termination because it made a categorical statement that the settlement had ’been terminated on 31-12-64.  The management was  therefore estopped from now taking the stand  that  the settlement  was not put an end to or that the reference  was invalid. [800 G-801 E] Cochin  State Power, Light Corporation Ltd. v. Its  Workmen, [1964] 2 L.L.J. 100, Workmen of Western India Match Co. Ltd. v.  Western  India  Match  Co.  Ltd.,  [1963]  2  S.C.R   27 Management  of  Bangalore Woollen, Cotton & Silk  Mills  Co. Ltd. v. Workmen & Anr., [1968] 1 S.C.R. 581, applied. Workmen  of  Continental  Commercial Co. (P)  Ltd.  v.  West Bengal & Ors., [1962] 1 L.L.J. 85, disapproved. (ii)The  Tribunal  considered the financial status  of  the company  and the era of prosperous business which  it  could look forward to, as well as the wage structure prevailing in

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the  relevant units of the industry and other wages.   There was  no justification for interfering with it on the  ground that  it bad not fixed a separate dearness allowance  linked with, increase or decrease in the cost of living index or to link the consolidated wage itself with it. [803 H; 804 H] Hindustan  Times  Ltd.  New Delhi v. Their  Workmen  &  Vice Versa,  [1964]  1 S.C.R. 234, French Motor  Car  Co.  Ltd.v. Workmen,  [1963]  Supp. 2 S.C.R. 16 and  Bengal  Chemical  & Pharmaceutical  Works Ltd. v, Its Workmen, [1969]  2  S.C.R. 113, referred to. However this was a fit case in which wage adjustment  should have  been made.  The Tribunal gave no reason for  rejecting the  claim  altogether.  Why some adjustment  was  not  made taking into consideration the length of the service bad  not been  stated.   There was no adjustment in  the  first  wage structure which was the subject of a settlement as such  and it  would not be fair also not to fix the wages in the  wage scales which in fact were those fixed for the first time  by the  award.  From an analysis of the various  categories  of workers  in each of the years it would appear that a  larger majority  of them had been employed between the  years  1963 and 1965.  If a direction was given that there should be one increment  for  every completed 3 years up to  the  date  of reference namely 27-12-65, no 792 injustice  would  occur,  nor will there be  strain  on  the financial  resources  of the appellant which  it  could  not bear. [Directions given. [805 B-E] (iii)A   statement   as  per   Income,-tax   Assessment statement ’A’ Ex.  C-5 was filedby the company on 2-9-66. Similarly another statement of profit and lossaccount as per  annual account of the company-Statement ’B’ Ex. C6  was filed on the same date.  In the former statement C-5 accord- ing  to  item  2, depreciation  allowed  by  the  Income-tax Officer  for 1964 was shown as Rs. 1,81,054 while  according to  C-6  depreciation was shown as  Rs.  80,190.   Similarly development  rebates under C-5 was shown as Rs. 5,822  while under C-6 it was shown as Rs. 3,917.  There was no challenge to  these  figures as such, nor did the  respondent  dispute that  these amounts were not as per the  assessment  orders. The Tribunal had accepted statement C-6 but ignored C-5 even though  both the statements were prepared by the company  in exactly  the  same circumstances, one  from  the  assessment orders  and the other from the balance sheet.  There was  no justification for the rejection of the company’s claim  that depreciation  and  development  rebate’ be  allowed  as  per income-tax assessment. [806 F-H] (iv)The claim of the Respondent for return on reserves also must  be  allowed because under s. 6(d) read with  item  (1) (iii)  of the Third Schedule to; the Bonus Act the  Tribunal ought to have allowed 6% of the company’s reserves shown  in its  balance-sheet as at the commencement of the  accounting year including any profits carried forward from the previous accounting  year.   The Tribunal was wrong  in  taking  into account  the  figures  of  reserves as at  the  end  of  the accounting year. [807 B-C] (v)In   dealing   with  the  financial  capacity   of   an undertaking to bear the burden of a gratuity scheme it would not  be  appropriate  to  approach  the  question  ’from  an investors  point  of  view.   The  overall  picture  of  the soundness  of the undertaking and its future prospects  must be taken into account. [812 D-E] In  the present case the financial position of  the  company was  such that the implementation of the scheme of  gratuity was  not likely to place an undue or  unconscionable  burden

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upon the company. [812H]  M/s.   British Paints (India) Ltd. v. its Workmen [1966]  2 S.C.R.  523, Management of Wengar & Co. v.  Workmen,  [1963] Supp.  2  S.C.R. 962, Burlianpur Tapti Mills Ltd. v.  B.  T. Mills   Mazdoor  Sangh,  [1965]  1  L.L.J.  453,   Hindustan Antibiotics  Ltd.  v.  The Workmen,  [1967]  1  S.C.R.  652, Gramaphone Company Ltd. v. Its Workmen, [1964] 2 L.L.J.  131 and  Bharatkhand  Textile Mfg, Co. Ltd.  v.  Textile  Labour Association, Ahmedabad, [1960] 3 S.C.R. 329, referred to. (vi)While  no doubt the general rule is that gratuity  must be  related to the basic wage, in cases where the wages  are not very high and a consolidated wage has been fixed  taking into account the dearness allowance, the scheme of  gratuity may  be related to the consolidated wage, which will be  the basic  wage  in the subsequent years.  At  any  future  date having  regard to the price index, the claim of the  workmen either  for a rise in the wage based on the cost  of  living index  or  the  grant  of  separate  dearness  allowance  to neutralise   that  rise  is  bound  to  be  considered   and adjudicated.  No difficulty in implementing the scheme could therefore  arise because of the fact that the  Tribunal  had prescribed  a  consolidated  wage  without  indicating  what position  of that wage was the basic wage and what  position the dearness allowance. [815 E-F; 8 1 3 H-814 A] Management  Ghaziabad  Engineering  Co.  (P)  Ltd.  v.   Its Workmen,  [1970] 1 S.C.R. 622, Delhi Cloth &  General  Mills Co. Ltd. v. Workmen & 793 Ors.  [1969] 2 S.C.R. 307, Remington Rand of India  Ltd.  v. The Workmen, [1968] 1 L.L.J. 542, referred to. (vii)The  criticism  that  the scheme  was  unfair  and incongruous  because  those  that retire  are  given  larger benefits than those who are retrenched was unwarranted.  The difference  between  the  gratuity payable  to  persons  who resign  or retire voluntarily and those whose  services  are terminated  is that the latter will receive in  addition  to the  gratuity  the retrenchment compensation  admissible  to them under the Industrial Disputes Act, while in the case of the  former he will not be entitled to it.  The  scheme  was not only reasonable but fair. [815 G-816 B]

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  204  and 610 of 1967. Appeals by special leave from the Award dated September  30, 1966  of  the Industrial Tribunal,  Maharashtra,  Bombay  in Reference (IT) No. 468 of 1965. I.N. Shroff, for the appellant (in C.A. No. 203 of 1967) and Respondent No. 1 (in C.A. No. 610 of 1967). Madan  G. Phadnis and Janardan Sharma, for  the  respondents (in  C.A. No. 204 of 1967) and the appellants (in  C.A.  No. 610 of 1967). The Judgment of the Court was delivered by P.Jaganmohan Reddy, J. The Government of Maharashtra  had referred  the dispute between the Appellant and its  Workmen to the Industrial Tribunal under the Industrial Disputes Act 1947  (hereinafter  called  ’the Act’) in  respect  of  Wage scales, dearness allowance, bonus, gratuity and  permanency. The Award made by it is the subject matter of this appeal by Special  Leave (Civil Appeal No. 204 of 1967) in  which  the dispute  relating to wage scales and dearness  allowance  is contended  only  on the ground that there was  a  settlement between  the  workmen and the employers  in  a  conciliation

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proceedings  and as that has not been terminated  by  either party the Govt. has no jurisdiction to refer the dispute  in relation  thereto  to  the Tribunal.  If this  plea  is  not accepted  the wage scales and dearness allowance as  awarded by  the Tribunal is not challenged.  The claim for bonus  as awarded  is disputed as it often happens, on the manner  and method  of  computation  of  depreciation  and   development rebate.  It is the case of the employers that it has not the financial capacity to bear the burden of the gratuity scheme framed  by  the Tribunal for the workmen.  Apart  from  this certain  incongruities  in this scheme are  pointed  out  to which we shall refer and deal with at the appropriate place. The fifth issue relating to permanency is not pressed. The workman have also filed an Appeal, (Civil Appeal No. 610 of 1967) against the Award in which the omission by the 794 Tribunal  to  grant  an  adjustment in  the  wage  scale  by directing  a  fitment of the wages of workmen  in  the  said scales  in  accordance with the length of their  service  is assailed.  It is also pointed out that the Tribunal did  not link  the dearness allowance granted by it with the cost  of living index and lastly the award did not compute the return on reserves in accordance with the schedule 3 of the Payment of Bonus Act (hereinafter called ’the Bonus Act). A  few facts may now be stated for a better appreciation  of the matters in controversy.  The Appellant was registered as a Public Limited Company in or about 1956 and commenced pro- duction in or about 1958.  It employs approximately 170 per- sons of whom 155 are daily rated workers and it is the later category  who are the Respondents in this case.  In  October ’62  the General Secretary of the Mumbai Kamgar Union  which represents   the  workers  of  the  Appellant   (hereinafter referred  to as ’the Union’) made certain demands  on  their behalf  relating  inter-alia  to  wagescales  and   dearness allowance.   These  disputes formed the  subject  matter  of conciliation proceedings in the course of which the  parties arrived  at  an amicable settlement on 5th  April  ’63,  the relevant  terms of which pertaining to. the wage  scale  and dearness allowance ire as under : Demand No.1-Wage scales: The  workers drawing at present upto Rs. 30.30 np.  per  day will be given an ad-hoc increment of 60 np. with effect from 1-1-1.963  and another increment of 40 np. with effect  from 1-1-1964. (b)Persons drawing more than Rs. 3.30 np. per day will  be given an adhoc increment of 50 np. with effect from 1-1-1963 and anotherincrement  of  30 np. with effect  from  1-1- 1964. (c)The arrears of increment from 1-1-1963 till 31st March will be paid on or before 20th April, 1963. Demand    No. 2-Dearness allowance: As the wage, scale agreed to above are consolidated i.e. in- cluding allowance, the Union has withdrawn the demand". The  other  two demands relating to Casual  leave  and  paid holidays  are  not before us and need not be  noticed.   The parties also agreed to discuss the existing production bonus scheme and to finalise the suggestion for revising the  same by  the  end of June ’63, in view of the instalment  of  new machinery.   This  settlement  was reduced  to  writing  and signed  by  the  Chief  Executive  of  the  Appellant,   the Conciliation  Officer  and  the  General  Secretary,  Mumbai Kamgar Union and was considered a ’settlement’ as defined by clause ’p’ of Section 2 of the Act.  It was averred 795 that  as this settlement was binding upon the parties  under

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Section 19(2) of the Act for a period of six months from 5th April  ’63 and would continue to bind them after the  expiry of  the said period until the expiry of two months from  the date  on  which  a  notice in writing  of  an  intention  to terminate  the settlement is given by one of the parties  to the  other party or parties to the settlement and since  the settlement was not terminated in accordance with any of  the requirements  set out above by a notice in writing given  by the  Respondents, no dispute could be raised again  relating to  the wage scale and dearness allowance and therefore  the reference made on 27th December ’65 under Sec. 10(A)(d)  of the  Act  for adjudication was incompetent. On  the  dispute relating to the payment of bonus, the case of the  Appellant was that its profits for the year 1964 ’before  depreciation was  Rs. 4,11,176/- and that under the payment of Bonus  Act the  available,  surplus was Rs. 19,921/- out  of  which  an allocable  surplus  would  amount  to  Rs.  11,977/-.    The Tribunal  however,  in arriving at its  own  computation  of available surplus aid allocable surplus disallowed the claim of  the Appellant for a sum of Rs. 1,81,054/- on account  of depreciation  and  Rs. 5,822/in respect of  the  development rebate  reserve and instead it allowed depreciation  of  RE. 80.190/-  and development rebate of Rs. 3,917/- as shown  in the  balance  sheet.  In respect of these items  the  reason given  by  the Tribunal is that while it is true,  that  the Company  was  entitled to deduct by way of  depreciation  an amount  admissible in accordance with Section 32(1)  of  the Income  tax  Act by virtue of Sec. 6 (a) of the  Bonus  Act, there  was no material on record to show that the  deduction in  respect of the aforesaid items was actually made by  the Appellant in accordance with tile relevant provisions of the Income  tax Act.  In these circumstances it did  not  accept the deduction claimed by the Company, which were  admissible under the Bonus Act. On  the question of gratuity the case of the  Appellant  was that it has only been in existence for 8 years from 1958 and that  for the years 1958 to 1960 its working showed  losses. For  1961  there was a carry forward from prior years  of  a loss of Rs. 2,19,948/- which when set off against the profit of Rs. 93,062/in the year 1961 left a carry forward of  loss of  Rs. 1,26,880’ In the year 1962 it earned profits of  Rs. 84,837/- but the losses incurred in the earlier years  could not  be  wholly set off and the balance of the loss  of  Rs. 42,049/- had to be carried forward to the year 1963.   After setting  off this carry forward of loss against  the  profit for the year 1.963 there was only a profit of Rs.  65,323/-. In   these  circumstances  no  dividend  was  paid  to   the shareholders for the years 1958, to 1962.  Dividends however were  paid for the year 1963,1964 and 1965 but the stand  of the  Appellant  was  that  notwithstanding  the  earning  of profits and declaration  96 be provided for fully in accordance with the Income tax Act. Apart  from this there were large foreign loans the  payment of  which was made difficult by the further  burden  imposed upon it on account of devaluation of the Rupee.  To this was also  added the increase in the wage bill consequent on  the settlement  entered  into  with the Union  as  well  as  the increase  of  Rs.  20,869/-  due  to  Interim  wage   relief recommended  by  the Wage Board  for  Engineering  Industry. Taking  all these factors into consideration  the  Company’s case  before the Tribunal was that it had not the  financial ability  to  sustain a scheme of gratuity, Apart  from  this ground of attack, the Appellant also contested the scheme as being vague, contradictory and impossible to implement.  The

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Tribunal  it is said while it had prescribed a  consolidated wage,  directed the payment of gratuity by reference to  the basic  wage  excluding  the  dearness  allowances.   It   is therefore  contended  that it is not possible  to  ascertain which portion of the consolidated wage is the basic wage and which  portion the dearness allowance and  consequently  the implementation  of the scheme has become impossible.  It  is also  submitted that as the scheme stands it is  incongruous because a person who resigns or retires after 10 years  gets a   larger  gratuity  than  a  person  whose  services   are terminated. In  so  far  as  the  claim  for  bonus  is  concerned   the Respondents in their Appeal have challenged the Award of the Tribunal on the ground that it had worked out the return  no reserves not as they were shown in the balance sheet at  the beginning of the year viz.  Rs. 2,70,497/- as required under Schedule III of the Bonus Act but on the reserves  appearing at  the end of the year amounting to Rs.  4,92,349/-.   This method of computation would reduce the return on the reserve deductable as a prior charge by Rs. 14,000/and  consequently would increase the available and allocable surplus.  We have already  stated  that the Respondents in their  Appeal  have further  challenged  the Award relating to the  fixation  of wage scales and dearness allowance, the former on the ground that  the  Tribunal gave no directions on  the  question  of adjustments  or fitments notwithstanding the fact  that  the issue  was  specifically referred for adjudication  and  the latter  by  not  linking  it to the  cost  of  living  index allegedly on the ground that "no change for worse is  likely to take place for some time to come".  It will be convenient to examine these rival contentions in respect of each of the items separately. The  question  whether the settlement in Ex.  C.  9  was  in force at the time when the Government made the reference  of the  dispute  to the Tribunal, will depend  on  whether  the provisions of Sec. 19(2) read with Sec. 2(p) of the Act were complied  with.   There  is no dispute that  Ex.   C9  would amount  to a settlement but on behalf of the workmen  it  is contended that it only records an ad- 797 hoc  settlement, the operative portion of which  relates  to two  increments  one to be given from 1.1.63 and  the  other from 1-1-64, and it is during this period that the  dearness allowance   was  given  up.   In  these  circumstances   the management,  it  is  claimed, terminated  the  agreement  by making counter proposals to the workmen in the  conciliation proceedings Which terminated the settlement.  This  averment is supported by the finding of the Tribunal to That  effect, namely,  that  there was a waiver of the  requirement  of  a written  notice  putting  an end  to  the  settlement.   The contention  on behalf of the Appellant on the other hand  is that there could be no waiver of a statutory notice required by the provisions of the Act to be in writing to put an  end to  the  settlement,  and that the analogy of  waiver  of  a notice required to be given in suits against the Govt. under Sec. 80 of the Civil Procedure Code is neither apt nor is it applicable  to  cases where as a matter of public  policy  a written notice is required to be given by one of the parties to  the  other party to terminate the  settlement.   Section 2(p) of the Act defines ‘settlement’ as meaning : "   a  settlement arrived at in the course  of  conciliation proceeding  and  includes a written  agreement  between  the employer and workmen arrived at otherwise than in the course of  conciliation  proceeding where such agreement  has  been signed  by  the  parties thereto in such manner  as  may  be

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prescribed  and a copy thereof has been sent to  an  officer authorised in this behalf by the appropriate Government  and the conciliation officer" In so far as it is relevant, Section 19 is as follows 19(1) A settlement shall come into operation on such date as is agreed upon by the parties to the dispute, and if no date is  agreed upon, on the date on which the memorandum of  the settlement is signed by the parties to the dispute. (2)  Such settlement shall be binding for such. period as is agreed upon by the parties, and if no such period is  agreed upon, for a period of six months from the date on which  the memorandum,  of settlement is signed by the parties  to  the dispute,  and  shall continue to be binding on  the  parties after  the expiry of the period aforesaid, until the  expiry of two months from the date on which a notice in writing  of an intention to terminate the settlement is given by one  of the parties to the other party or parties to the settlement. (3)  No notice given under sub-section (2) of sub-section (6)  shall  have  effect,  unless it is  given  by  a  party representing   the  majority  of  persons’  bound   by   the settlement or award, as the case may be.,, 798 Reading  Sec. 19 with the definition in sec. 2(p)  it  would appear that a settlement will enure for the duration of  the period  for which it has been agreed to between the  parties and  if no period is agreed upon for a period of six  months from  the  date  on which the memorandum  of  settlement  of dispute is signed by the parties and where it is put an  end to  by a notice in writing it will continue to be  operative until the expiry of two months from ;the date on which  that notice  is  given.   It  would appear  that  even  where  an agreement is for a fixed period it will not only continue to rebinding  for the duration of the period of settlement  but thereafter  also  until  it is terminated  by  a  notice  in writing  and even then it will continue for a period of  two months  from the date of such notice.  While no doubt it  is true that a notice must be in writing, such a notice can  be inferred from correspondence between the parties. In Cochin, State Power, Light Corporation Ltd. v. Its  Work- men(1) a settlement between the employers and the  employees had been arrived at on 25th November 1954 and was to  remain in  force  for a period of five years from 1st  October  ’54 i.e.,  upto  30th September ’59.  While this  was  so  under Section  19(2)  of  the  Act it  would  continue  to  be  in operation  till  it was terminated by a notice  in  writing. The  case  of  the  employers in  that  case  was  that  the settlement  was  never terminated by notice in  writing,  as such  it  continued to be in force when  the  reference  was made,  and  since a reference of a dispute made  during  the continuance  of the settlement is bad, the Tribunal  had  no jurisdiction  to  adjudicate the dispute  relating  to  wage fixation  and dearness allowance.  It however appeared  that the  workmen  had  presented a charter of  demands  on  14th October ’59 in which there was a reference to the settlement and  it  was stated therein that the Union had on  the  13th October  ’59 resolved to terminate the  existing  settlement and  submit the charter of demands to the management.   Then followed the charter of demands.  It was contended that this did not put an end to the settlement as required by  Section 19(2)  of  the  Act because there was no  reference  to  the termination  of the settlement by that charter.   The  Court however rejected this contention and held that as there  was a reference under the charter of demands to a resolution  in which  a  specific statement that the settlement  was  being terminated  thereby  was  made it was  held  that  that  was

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sufficient  notice as required under Section 19 (2)  of  the Act  and hence the reference in regard to items  covered  by the settlement were valid.  Wanchoo, J. at page 101 observed               "There  is  however  no  form  prescribed  for               terminating settlements under S. 19(2) of  the               Act and all               (1) [1064] 2 L.L.J. 100.               799               that has to be seen is whether the  provisions               of  S.  10  (2)  are  complied  with  and   in               substance a notice is  given as required         X       X thereunder". The facts in the Workmen of Western India Match Co. Ltd. . The  Western India Match Co. Ltd.,(1) were that  during  the pendency of negotiations the Union by a letter had asked the Company to treat the charter of demands as notice under Sec. 19(2  )  of the Act without first  terminating  the  earlier settlement  in an Award and the Company had agreed to  refer the  matter  in dispute to the adjudication of  a  Tribunal. But  nonetheless  it was contended that when  there  was  no notice of termination of settlement in the charter of demand the  subsequent  reference  in a letter that  it  should  be terminated  as  from the charter of demand  was  not  valid. This  contention was however negatived on the ground that  a formal  notice  under  s. 19(2) of the  Act  was  immaterial inasmuch as the presentation of the charter of demands filed by  a letter amounted to a notice of termination of  settle- ment.  In the Management of Bangalore Woollen, Cotton & Silk Mills Co. Ltd., v. The Workmen & Anr.,(2), it was sought  to be  contended that the case in the Workmen of Western  India Match Co.  Ltd., supported the proposition that an inference to terminate an award or settlement can be gathered from the various  correspondences that passed between the  management and  the  Union but one of us Vaidialingam, J. at  page  586 pointed out that that decision "does not lend any support to such  a  view".  It was ultimately held in that  case  that- though  no  such  formal notice was  given  in  the  earlier correspondence  the letter of April 8, 1957 written  by  the Union could itself be construed as notice within the meaning of Section 19(2) and therefore the Tribunal had jurisdiction to  adjudicate upon the claim as the reference was  made  by the  State  Government long after the expiry of  two  months from April 8, 1957.  It is true that though a written notice can  be  spelled out of the correspondence there must  be  a certainly regarding the date on which such a written  notice can  be  construed to have been given because  a  settlement notwithstanding  such notice continues to be in force for  a period of two months from that date. The  tribunal drew support from the Workmen  of  Continental Commercial Co. (Private) Ltd. v. Govt. of West Bengal and Ors.  ( 3 )   for holding that the charter of demands itself constitute  the notice as required under Section 19  (2)  of the,  Act.   It thought that that case was decided  by  this Court.  This however was a case decided by the Calcutta High Court  where it was held that the charter of demands  was  a tacit representation by the workmen (1) [1963]2 S.C.R. 27.       (2) [1968]1 S.C.R. 581. (3) [1962] 1 I.L.J. 85. 800 not  to remain bound any more by a settlement arrived at  in conciliation  proceedings  but  sub-.sec.  (2)  of  Sec.  19 contemplates an express representation physical, in the form of  writing terminating the agreement.  While holding so  it nonetheless  observed  that a notice under Sec., 19  (2)  of

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the.  Act can also be waived by the party to whom the notice is  to  be sent.  This view of the Calcutta  High  Court  is opposed,  to  the  view  taken by this  Court  and  must  be rejected as not good law because in our view there cannot be any waiver by conduct or implication of the requirement of a written  notice which that Court had itself recognised  must not be a tacit representation but an express  representation in the form of writing terminating the settlement. This  being  the legal position it is necessary  to  examine what in fact took place in this case.  The settlement in  C. 9  would  appear  to be as  contended  by  the  Respondent’s Advocate  on  an ad hoc basis because it  provides  even  in respect  of  the demand for wage scale that  the,  employees will  be  given two ad hoc increments one with  effect  from 1-1-63 and another with effect from 1-1-64.  Even in respect of the bonus scheme which was not part ,of the settlement it was agreed to finalise the suggestion for revising it by the end of June ’63, in view of the instalment of new machinery. Nonetheless Exh.  C. 9 embodies a settlement and even if the duration  of that settlement is not fixed as  contended,  it will  continue to be in operation until a notice in  writing to terminate it is given, or from the correspondence such  a notice to terminate can be ascertained.  The Company had  in its  written statement taken up- the stand that Exh.   C.  9 still subsists but the correspondence shows that the Company had  put  an end to it before the charter  of  demands  were presented   to  it.   It  would  appear  that   during   the proceedings  in conciliation of the dispute that  has  given rise  to the reference which is the subject matter  of  this appeal, the Additional Commissioner of Labour, Bombay, wrote to  the Manager on 26-1-65 before entering upon  the  conci- liation  asking him to give information as to whether  there is  any  agreement,  settlement or an  Award  governing  the demand  raised  on  behalf of the  workmen  in  the  present dispute.   The  Company by its reply dated 20th  March  1965 informed  him  that  the agreement between  itself  and  its workmen had expired.  It said :               "at    present    we   do   not    have    any               agreement/settlement or an Award covering  the               demands raised on behalf of the Workmen in the               present  dispute with the present  Union.   We               had an agreement with the previous Union  M/s.               Mumbai Kam2ar Union, for two years, which  has               expired  on 31-12-1964.  There are no  demands               pending for adjudication". The stand taken by the company that there is, no settlement in  force  covering the, demands raised by  the  workmen  is clear.  In Body text               tQ34pe4-˜  $-(#,&p{been  remitted during his life time he would certainly have been liable  to Body textunder the provUtQ34pe4-˜  $-(#,&p{with  regard  to matters sing out of the Administration of the, Act.   Sub-s. Body textides, the coUf tQ34pe4-˜  $-(#,&p{with  regard  to matters sing out of the Administration of the, Act.   Sub-s. (2)  provides, the co 802 On  behalf  of  the  Union it is pointed  out  that  by  not directing  an adjustment in these wage scales a  worker  who has  been in the service of the Company for 8 years  drawing less  than  the  initial start in each of  the  wage  scales according to the category in which he is placed will get the same  initial wage as a person who is taken into service  at

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or  near  the date of the claim of the  enforcement  of  the Award  which is not in conformity with social justice.   The Tribunal  it is said should have directed an ad hoc  fitment like that given in the case of The Hindustan Times Ltd., New Delhi v. Their Workmen Vice Versa(1), or in French Motor Car Co. Ltd. v. Workmen(2).  The Tribunal in the case before  us pointed out that the demand of the Union for wage scales was that  all the workers should be classified  in  consultation with the Union and to be fixed in the wage scales claimed by it on a point to point basis with retrospective effect  from 1-2-1965.  It is these demands that were considered and  the Tribunal  did not see its way in adopting either the  scales of wages claimed by it or fixing them in the wage awarded on a point to point- basis.  There is therefore no question  of the Tribunal not exercising a jurisdiction vested in it  but it  must  be taken as having been considered  and  rejected. The  question whether that rejection is valid or  not  Would depend on the facts and circumstances of the case as can ,be ascertained  from  the  material placed before  it.   It  is contended by the Union that the material before the Tribunal was such that it could have made fitments for instance, from the statement of the dates of joining and the classification and  designation of the workmen as given in  U-3  statement. From this statement the, Tribunal could have ascertained the length  of service of each of the employees,  his  category, his  date  of  joining and the wage  scales  which  he  was drawing  on the date of the Award and could have  formulated and  directed an ad hoc fitment.  It is true that taking  as typical, a case of a semi-skilled operator who joined on  1- 12-1958,  another in the same category who joined  on  13-3- 1961  and  one who joined on 19-3-1964, more nearer  to  the date of the Award, it would appeal that as all of them would be  drawing less than the initial wage of Rs. 5.50 in  their old  wage  scales they will start with Rs. 5.50 in  the  new wage  scales fixed for semi-skilled workers even though  the first of them had on the date when the wage scales came into operation 8 years service and the second of them 5 years and the last of them only 2 years.  In the French Motor Car  Co. Ltd.’s  case  (2) this Court after considering  the  several instances where the Tribunal had granted fitments  expressed the view that general adjustments are granted when scales of wages are fixed for the first time.  At page 27-28  Wanchoo, J. observed: (1)  [1964] 1 S.C.R. 234. (2) [1963] Supp. 2 S.C.R.16. 801   the  statement  of claim the General  Secretary  of  Sarva Shramik Sangh representing the workmen said that the private agreement between the Company and Mumbai Kamgar Union  dated 5th April 1963 was duly terminated and thereafter a  charter of  demands  were  presented on  4-2-1965.   Thereafter  the Assistant Labour Commissioner tried to conciliate and in his report   Ex.   U  ,  6  while  stating   that   conciliation proceedings have ended in a failure, relying upon the fetter of  the  management,  stated that there  was  no  subsisting settlement/agreement  or  Award presently in  this  dispute. The  admission by the management is said to be made under  a mistake.  We do not think this is a satisfactory explanation of a categorical statement.  In our view the letter of  20th March  1965  must at any rate be deemed to be  a  notice  of termination, because there, is a categorical statement  that the  settlement has been terminated on 31-12-1964.  Even  if there is no evidence of written notice terminating it on the date  specified,  the  letter  which said  that  it  had  so terminated must be taken as the requisite notice, if so, the

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reference  to adjudication under the Act has been made  long after the expiry of the two months i.e., on 27-12-1965.   If we view the matter slightly differently, the, result is  the same, because when both the parties to the dispute Proceeded on the specific plea that there was no settlement binding on either  of them in respect of the wages and dearness  allow- ance  even  prior  to conciliation, the  Government  had  no option, on a failure of the conciliation proceedings and  on being   informed  by  the  written  representation  of   the appellant  that  there was no settlement in  force,  but  to refer the dispute to the Tribunal.  The management therefore is  estopped from now taking the stand that  the  settlement was not put an end to or that the reference was invalid. In  view  of  this finding though the  management  does  not assail  the wages and dearness allowance as awarded  by  the Tribunal,  as already noticed, this Award is  challenged  by the Union on the ground that no adjustment in the wage scale was granted and that the dearness allowance’ was not  linked with  the cost of living index.  It is also  contended  that the Tribunal by not making an Award_ in respect of  fitments in   the  wage  scale  committed  an  error  and   ’is   not adjudicating the dispute in respect thereof, ’has failed  to exercise a jurisdiction vested in it.  It is true that while the  Tribunal prescribed a consolidated wage scale of  daily wages, it did not direct fitments in those wage scales.  The scales that have been prescribed for the various  categories of workers are as follows      Unskilled............     Rs. 4 .50-0 .20-6 .50      Semi-skilled              Rs. 5 .50-0 .25-8 .00      Skilled                   Rs. 7 -00-0 .35-10 .50      Highly skilled            Rs. 8 .50-0 .50-12 .50 803 .lm15 "A  review  therefore of the cases cited on  behalf  of  the respondents  shows  that generally adjustments  are  granted when  scales  of wages are fixed for the  first  time.   But there  is  nothing  in  law to  prevent  the  Tribunal  from granting  adjustment  even  in cases  where  previously  pay scales were in existence; but that has to be done  sparingly taking  into  consideration the facts and  circumstances  of each  case.  The usual reason for granting  adjustment  even where  wage scales were formerly in existence is  that  wage scales were particularly low and therefore justice  required that adjustment should ’be granted a second time." This principle in our view recognises that the payment in  a graduated wage scale should reflect the years of service  of an employee in that grade.  When the graduated wage scale is first  fixed  and  a  fitment  is  made  therein  subsequent revision  in wage scales do not require any further  fitment because the original fitment will continue to give them  the advantage  of  their service.  The case of  Hindustan  Times Ltd.  v.  Their Workmen(1), is one where the  Tribunal  took into  consideration in deciding the question  of  adjustment that  it would be fair to give some relief to  the  existing employees by means of an adjustment, while at the same  time not  burdening the employer with higher rates of  wages  for new incumbents.  In the circumstances it has held that there was  no  justification for interfering with  the  directions given by the Tribunal in the matter of adjustments. The  decision  referred to would clearly indicate,  that  in each  case  depending on the facts  and  circumstances,  the question  whether any fitments should be made at all  or  if fitments  are  to  be  made,  what  adjustments  should   be affected, will have to be considered.  In this case while no doubt the wage scales and dearness allowance demanded by the

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Union  which  was  said to be, prevalent in as  many  as  26 concerns  engaged in the Engineering Industry in the  region of  Bombay would place fairly heavy burden on the  financial resources  of the Company, the Tribunal observed that  there was  no material on record which would furnish a  basis  for treating the concerns relied upon by the Union as comparable concerns.  It was also pointed out that there were about  21 concerns in the same unit of the industry which were  paying minimum  consolidated  daily  wages of  Rs.  5.08  to  their employees  and  therefore their wage  structure  would  thus represent  a  cross-section  of the wage  structure  of  the employees  working in Engineering concern and would be  very relevant for fixation of wage structure of employees in  the Company.  In the end the Tribunal considering the  financial status  of  the Company and the era of  prosperous  business which it can look forward to, as well as the wage- (1)  [1964] 1 S. C. R. 234.                             804 structure  prevailing in the relevant units of industry  and other  relevant considerations, prescribed the  consolidated scales  of  wages.  We must therefore reject the  claim  for dearness  allowance being linked with cost of living  index. The  case  of  the  Respondents is  that  the  Tribunal  had misdirected itself by relying upon a recent award made by it in  the case of another Company where it was said  that  the cost  of. living had gone up to 70 points but that  was  not taken   into  consideration  because  the  Company   was   a flourishing  Company  and as such the  minimum  consolidated wage  was fixed as being proper.  The criticism against  the approach  of the Tribunal is in our view not  warranted  be- cause  it specifically stated in respect of the Award  which it  considered that that "award may not be taken  as  laying down  a  standard minimum wage in the  engineering  unit  of industry,  the  award  would have its own  importance  as  a contributory factor for determination of the wage-structure, of  the  employees in the Company’.  As we pointed  out  the Tribunal  considered  several  factors in  fixing  the  wage scale.   Each case must be considered on its own merits  and what  was awarded in the Hindustan Times Ltd. case(1) or  in the  Bengal  Chemical  & Pharmaceutical Works  Ltd.  v.  Its Workmen  (  2 ) , cannot be a detemining  factor  in  other cases.  The principles relating to the fixation of fair wage including  the payment of dearness allowance to provide  for adequate   neutralisation,  which  should  be   taken   into consideration in industrial adjudication, were stated by one of us, Vaidialingam J, at page 123 of which the two that are relevant are as follows               "(1)               (2)   The purpose of dearness allowance  being               to neutralise a portion of the increase in the               cost  of living, it should ordinarily be on  a               sliding  scale and provide for an increase  on               the rise in the cost of living and a decrease               on a fall in the cost of living.               (3) (4)               (5)   The additional financial burden which  a               revision  of  the wage structure  or  dearness               allowance  would impose upon an employer,  and               his  ability  to bear such  burden,  are  very               material and relevant factors to be taken into               account". In  these circumstances we are satisfied that  the  Tribunal after  considering the various factors to which a  reference was  made awarded a consolidated wage having regard  to  the financial   capacity  of  the  industry  and  there  is   no

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justification for interfering with it on the ground that  it had not fixed a separate dearness (1)  [1964] 1 S.C.R. 243. (2)  [1969] 2 S.C.R. 113. 805 allowance  linked with increase or decrease in the  cost  of living  index or to link the consolidated wage  itself  with it. We  are however satisfied that this is a fit case  in  which wage  adjustment should have been made.  The Tribunal  gave’ no reason for rejecting the claim altogether.  We could have understood  the rejection of the claim of the Union that  it should be given the right to make the adjustment itself, but why  some adjustment was not made taking into  consideration the  length of the service, has not been stated.  There  was no  adjustment  in the first wage structure  which  was  the subject  of  a settlement as such and it would not  be  fair also  not to fix the wages in the wage scales which in  fact are  those fixed for the first time by the away  Besides  we find  from an analysis of the various categories of  workers in  each  of the years that a larger majority of  them  have been  employed between the years 1963 and 1965.  If we  were to direct one increment for every completed 3 years upon the date  of  reference namely 17-12-1965,  no  injustice  would occur nor will there be a strain on the financial  resources of the Appellant which it cannot bear.  It would appear that of the 145 workers shown in the statement U-3 only about  43 Workers  will have the benefit namely 9 employed in 1958,  7 in  1959, It in 1960, 5 in 1961 and 1 1 in 1962.   Of  these only  16 will get two grade increments in the adjustment  as proposed.   In this view we direct the fitments  accordingly subject  however, that the other workers will start  at  the initial  wage in their respective categories and their  next increment as also the movement in respect of those who  have joined  service  between 1958 to 1962  after  the  aforesaid fitment  is made will be due to them on completion  of  each year from the date of the enforcement of the Award. On  the computation of bonus the three items that have  been challenged are those in respect of depreciation, development rebate,  and  return  on  reserves-the  former  two  by  the Appellant  and the latter by the Respondent in  its  appeal. The  computation  of bonus as already  noticed  is  governed according  to the Bonus Act.  Under Section 23 of  this  Act there is a presumption about the accuracy of  balance-sheets and  profit and loss accounts of Corporations and  Companies and since the accuracy of the particulars contained in these documents  have not been challenged in this  case,  reliance will have to be placed thereon.  Taking the first two  items regarding  which the management had objection, the  Tribunal had   deducted  a  sum  of  Rs.  80,190/-  on   account   of depreciation  and  Rs.  3,917/- on  account  of  development rebate  and  rejected the claim of the Company to  make  the deductions  in respect of the aforesaid items in  accordance with the Income-tax Act as provided by Section 6 (a) of  the Bonus  Act, by merely adopting the amount ’as shown  in  the balance-sheet and profit and 806 loss account.  While the, Tribunal, no doubt recognised that the  Company  was  entitled  to deduct  amounts  by  way  of depreciation in accordance with Section 32(1) of the Income- tax Act it rejected the claim because there was no  material on  record to show that the, deduction as actually  made  by the Company towards depreciation and development rebate were in accordance with the relevant provisions of the Income-tax Act.   The  figures for deduction on account  of  return  on

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reserves have been taken not on those shown in the  balance- sheet at the beginning of _the year, which is what the Bonus Act  prescribes but on the figures shown at the end  of  the year.  It is submitted by the Respondent’s advocate that the Tribunal  was  right  in disallowing  the  first  two  items because  the Company did not prove by satisfactory  evidence that the amounts claimed by them were true.  This contention must  be rejected.  There can be no doubt that the  employer is  entitled to deduct from the gross profit,-, as  computed under  Sec. 4, depreciation under Section 6(a) of the  Bonus Act  in accordance with Section 32(1) of the Income-tax  Act and under Section 6(d) such further sums as are specified in the  Third  Schedule to the aforesaid Bonus Act.   The  only dispute is whether the Appellant has placed material  before the  Tribunal  from which it could make the  computation  as required under the Income-tax Act.  In our view the employer has  been claiming from the very beginning depreciation  and development rebate reserve under the Income-tax Act and  had produced  a statement signed by the Company’s  officials  in which  these  figures  were  shown  as  per  the  Income-tax assessments for each of the year specified therein.   Before the  conciliation  officer a statement was  filed  in  which depreciation  as  per  Income-tax was claimed  as  Rs.  1.80 lakhs.   In  the, statement of claim also  this  amount  was claimed.   Apart  from these averments a statement,  as  per Income-tax assessment, statement ’A’, Ex.  C-5 was filed, by the  Company  on 2-9-1966.  Similarly another  statement  of profit  and  loss  account  as per  annual  account  of  the Company-Statement  ’B’ Ex.  C-6 was filed on the same  date. In the former document C-5 according to item 2, depreciation allowed by the Income-tax Officer for 1964 was, shown as Rs. 1,81,054/- while according to C-6 depreciation as per annual account of the Company was shown as Rs. 80,190/-.  Similarly development  rebate under C-5 was shown as  Rs.  5,822/while under C-6 it was shown as Rs. 3,917/-.  It may be  mentioned that  there was no challenge to these figures as  such,  nor did  the Respondent dispute that these amounts were  not  as per  the  assessment  orders.   The  Tribunal  had  accepted statements  in  C-6  but ignored C-5 even  though  both  the statements  were prepared by the Company in exactly  similar circumstances, one from the assessment orders and the  other from  the balance-sheet.  We find no justification  whatever in the reduction of the claim by 807 the  Company.  The claim of the Company for a  deduction  on account  of  depreciation  and  development  rebate  of  Rs. 1,61,054/and  Rs.  5,822/- instead of Rs. 80,190/-  and  Rs. 3,970/- is therefore, accepted. The claim of the Respondent for return on reserves also must be  allowed because under s. 6(d) read with item  1(iii)  of the  Third Schedule of the Bonus Act the Tribunal  ought  to have  allowed  6%  of the Company’s reserves  shown  in  its balancesheet  as at the commencement of the accounting  year including  any  profits carried forward  from  the  previous accounting  year.  A reference to the balance-sheet for  the year  ending  31-12-1964,  would show that the  3  items  of reserves  at the end of the previous year which will be  the beginning  of the accounting year 1964 were (1)  development rebate  reserve-Rs.  1,82,174/-,  (2)  general   reserve-Rs. 60,000/-, and (3) profit and loss account Rs. 5,323/-  which together  add  to Rs. 2,47,497/-.  A return of  6%  on  this amount  should have been taken into account but instead  the Tribunal  allowed  6%  on  Rs.  4,92,349/-  which  were  the reserves at the end of the year comprised of Rs. 1,86,091/as development rebate reserve, Rs. 30,000/- as General  reserve

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and  Rs. 6,289/- profit and loss account.   The  computation under the Bonus Act is as stated and not as the Tribunal has calculated.   It would make a difference of Rs. 14.000/-  in respect  of this item.  We have at the end of the  arguments asked  both  the  learned Advocates to  give  us  an  agreed statement  on  the  lines  indicated  above  in  respect  of depreciation, development rebate and return on reserves.  We give below that statement: "BONUS CALCULATION FOR THE YEAR 1964      (1-1-1964 to 31-12-1964)                                            Rs. Gross profits of the year 1964         4,11,176.00 Add bonus paid for the year 1963       19,129.00 Deduct prior charges                    4,30,304.00 (a) Less Depreciation as per Income-tax1,81,054.00                                         2,49,250.00 (b) Less Development Rebate Reserve5,822.00                                          2,43,428.00 (c) Less Income-tax as  5% and Surcharge 1,21,714.00                                          1,21,714.00 (d) Less Return on capital at 8-1/2 Y. on Rs. 8,50,000/-                                             72,250.00                                            49,464 .00 808 (e) Less Return at 6% on Reserve of Rs.  2,47,497/- (Rs. 1,82,174+Rs. 60,000/-+Rs. 5,323/-)  14,849 .82- Available Surplus                          34,6118 Allocable surplus (60 Y. of Available Surplus)20,768.50 Annual Wage Bill during 1964                     2,43,562.98 Therefore, Allocable Surplus of              Rs. 20,768 .50" According  to this statement the available surplus  will  be Rs. 34,614.18 and the allocable surplus which is 60% of  the available surplus amounts to Rs. 20,768.50. This will be the amount  which  will be available for distribution  as  bonus instead  of Rs. 42,783/- as computed by the  Tribunal.   The Award will have ’to be accordingly modified. The,  item  relating  to  gratuity  is  challenged  by   the Appellant mainly on the ground that the Company’s  financial capacity  is not such as to bear the burden of the  increase in the wage scale and dearness allowance. A  good  deal of criticism was directed against  the  method adopted  by  the Tribunal in laying emphasis on  the  fairly heavy wage bill-which it was said the Company could bear and by  picking  and  choosing  convenient  passages  from   the Director’s  Reports  to  buttress the  conclusion  that  the financial position of the Company was sound.  Some of  these are as follows That  the  Company turned the profits received in  the  year 1963 into losses and very substantially reduced the  profits for  the  years 1961 to 1965; that the observations  of  the Chairman of the Board of Directors in the Director’s  Report for  the year ending 31st December 1965 had shown  that  the loan  was  increasing and the capital was being  raised  and that the import licences had been received, that orders  for principal  equipment had been finalised and that  production of  alloy steel chains will commence in the last quarter  of 1966.   The  observation  that this  expansion  project  was responsible  for the foreign exchange loan of  the  Company; that all these loans are payable in well-spaced  instalments and  with the increasing business turnover and profits  from year to year, that the Company should not find itself in  an embarrassing  financial  position or that it is in  a  sound financial  position are, all it is said a mere  speculation. In  our  view  this  criticism  is  not  justified   because everything  that  the Tribunal has pointed out as  we  shall

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show presently is warranted by the material on record.   The Tribunal  it  may also be noticed did not prescribe  a  very onerous or burdensome scheme either.  After referring to the decisions of this Court in M/s.  British Paints 809 (India) Ltd. v. Its Workmen(1), Management of, Wenger &  Co. v.  Their  Workmen(2), Burhanpur Tapti Mills Ltd. v.  B.  T. Mills  Mazdoor Sangh(3), it had on the principles laid  down therein  observed that it would be necessary and  proper  to make  a  modest beginning by introducing a lower  scheme  of gratuity   consistently  with  the  standing  and   business potential of the Company. In  determining the financial capacity of an  industry  what should be the approach of a Tribunal has been dealt with  by this  Court  in  some  of  the  Cases.   In  the   Hindustan Antibiotics Ltd. v. The Workmen & Ors. (4) Subba Rao, J.  as he then was held that :               "The  Tribunal  considered  all  the  relevant               circumstances;  the stability of  the  concern               the profits made by it in the past, its future               prospects  and its capacity and came  to  ’the               conclusion  that in the concern  in  question,               the labour should be provided with a  gratuity               scheme in addition to that of a provident fund               scheme.   We see no justification  to  disturb               this conclusion." (page 674) It  is  pertinent  to  notice that  gratuity  and  wages  in industrial  adjudication are placed on the same footing  and have priority over Income-tax and other reserves, as such in considering  the financial soundness of an  undertaking  for the  purposes  of  introduction of  a  gratuity  scheme  the profits  that must be taken into account are those  computed prior  to the deduction of depreciation and other  reserves. In  the  Gramophone  Company Ltd.  v.  Its  Workmen("),  the introduction  of  a  scheme  for  the  benefit  of  only  72 employees  who  were  non-factory workmen,  working  at  the Bombay  Branch  of the Company was contested on  the  ground that  the Company had already a provident fund  ’Scheme  for the benefit of the employees and’at the time when the  Award for  the introduction of the scheme was made the  percentage of  contribution  to the provident fund had  been  increased though that benefit was not given to a small number of  non- factory workmen at Calcutta and to the concerned workmen  at the  Bombay  Branch but was made available only  to  factory workers.   This contention was negatived on the ground  that the  mere  existence of a provident fund scheme  is  not  by itself   a   reason  for  reducing   the   gratuity   scheme particularly  when a good part of the services  of  existing workmen  were not covered by the provident fund scheme.   In that  case while considering the financial position  of  the Company  and  the contention on behalf of the  Company  that before  the  real profits for each year can  be  arrived  at amounts to (1)[1966] 2 S.C.R. 523. (2) [1963]Supp. 2 S.C.R. 862. (3) [1965] 1 L.L.J. 453. (4) [1967] 1 S.C.R. 652. (5)[1964] (2) L.L.J. 131. 810 be provided for compensation and development reserves should be deducted.  Wanchoo J, as he then was observed at page 136               "When  an industrial tribunal  is  considering               the  question of wage structure’ and  gratuity               which in our opinion stands nor or less on the               same footing as wage structure it has to  look               at   the  profits  made  without   considering               provision for taxation in the shape of income-

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             tax  and  for  reserves.   The  provision  for               income-tax  and  for  reserves  must  in   our               opinion  take  second  place  as  compared  to               provision  for  wage structure  and  gratuity,               which stands on the same footing as  provident               fund which is also a retrial benefit,  payment               towards provident fund and gratuity is expense               to  be  met  by an  employer  like  any  other               expense  including wages and if the  financial               position  shows that the burden of payment  of               gratuity and provident fund can be met without               undue strain on the financial position of  the               employer,  that  burden must be borne  by  the               employer.   It will certainly result  in  some               reduction in profits but if the industry is in               a stable condition and the burden of provident               fund  and gratuity does not result in loss  to               the  employer,  that burden will  have  to  be               borne by the employer like the burden of wage-               structure in the interest of social justice". On  the  facts  of this case it may be  mentioned  that  the Tribunal  did not award a separate basic wage  and  dearness allowance  but  a consolidated wage.  That  apart  while  no doubt  the  Company  did not, from the years  1958  to  1962 declare  any  dividends as it had made losses, it  began  to make  profits  increasingly  each year from  1963  to  1965. During  this  period not only did the capital which  was  in 1958  at Rs. 2,25,000/- increase to Rs. 1  1,00,000/in  1965 but  the  salaries and wage bill  correspondingly  increased from  Rs.  43,443/- to Rs. 5,42,609/-.  The loans  no  doubt also  increased  from Rs. 2,81,129/- to Rs.  8,29,343/-  but this by itself is not indicative of the financial insecurity of the Appellant because we find that notwithstanding  these loans the Company steadily built up reserves from about  Rs. 0.70  lakhs in 1958 to Rs. 6.16 lakhs in 1965.   The  losses which continued upto 1962 from 1.05 lakhs in 1958 came to be reduced to Rs. 0.42 lakhs in that year, no doubt mostly  due to the Appellant earning profits in 1961 and 1962 of 80  and 84  lakhs respectively.  Thereafter the profits were on  the increase;  which  in 1963 were Rs. 1.81 lakhs,  in  1964-Rs. 3.21 lakhs and in 1965-Rs. 2.80 lakhs.  All these profits it may  be mentioned are computed after deducting  depreciation and  this should be taken into account in  considering  the desirability of formulating a gratuity scheme for the 811 Appellant.   The  gross block which consists of  assets  and loans  etc. has also progressively increased from  Rs.  5.01 lakhs  in  1958  to  Rs.  20.00  lakhs  in  1965.   The  two statements  one on behalf of the Appellant and the other  on behalf  of  the Respondents, the figures in  which  we  have checked  up  from the balance-sheets for  the  corresponding years  and  with respect to which there is no  dispute,  are given below Statement of the Appellant ------------------------------------------------------------ Year   Capital  LoanLoss/ProfitSalaries &  Dividend                                            Wages -------------------------------------------------------------                 Rs.         Rs.            Rs.    Rs.    Rs. 1958          2,25,000   81,129.001,05,283.8443,443.29Nil               2,00,000.00 1959     3,00,000   71,347.00                2,60,000.00      1,59,537.6888,801.01   Nil 1960      3,00,000  1,10,588.68                2,77,800.002,19,948.911,15,947.60Nil.

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1961           4,20,000  85,786.491,26,886.451,42,090.43Nil                2,41,260.00 1962       8,50,000 2,04,720.00                 3,99,535.67   42,049.801,56,805.23Nil 1963       8,50,000 81,626 -60                  1,68,180.00  56,322.002,22,986.6951,000                  3,77,500.00 1964       8,50,000 29,294 -00                   1,31,640.00 74,289.003,21,242.0068,000                   3,31,415 -00 1965       11,00,000     94,100.00                    2,82,727.00     96,999.003,42,609.0093,767                    4,52,516.00 ---------------------------------------------------------------- Statement of the Respondent ----------------------------------------------------------------                  All figures in lacs -----------------------------------------------------------------      1958   1959    1960 1961  1962   19631964      1965 -----------------------------------------------------------------          Rs.  Rs.  Rs.    Rs. Rs.   Rs.    Rs.        Rs. Paid up capital     2.25 3.003.004.208.508.508.50    11.00 Reserves            0.700.820.92Nil     0.802.474.92 6.16 Loans               4.564 -11 5.24 3.276.046.254.928.29 Losses              1.051.592.191.26    0 -42-   - Profits---          0.80 0.841.813.21 2.80 Gross Block         5.016.39  7.07 7.7915.2716.7918.7820.00 Dividend---    -    6 P.C.  8 P.C.10 P.C. ----------------------------------------------------------------- Both the above statement$ would lead to the same  conclusion namely  that  the  Company’s  financial  position  was  pro- gressively  getting better and stronger each year  and  that from the year 1968 when the gratuity 812 scheme will be given effect to it would not be difficult for the Appellant to bear the burden of its implementation.   At any  rate  there is nothing to indicate that  the  financial position of the Appellant would not be further  strengthened as and from that year.  Even the Appellant’s Advocate  could not  contend that it will deteriorate.  Nor has the  Company placed  before  us any other material from  which  we  could judge that the financial implication of the gratuity  scheme would  place a heavy burden on the Company’s finances  which it  will  not be able to bear, nor are we in a  position  to ascertain  how  the pressure of the  implementation  of  the scheme  is distributed over the years because  the  employer does not have to provide the gratuity for all its members at once.   The Tribunal has stated and in our view  justifiably so, having regard to the list of the employees and the years in  which  they  have  joined  the  Company  that  they  are comparatively  young and not likely to retire all  at  once. In  fact  our  own examination of  the  statement  Ex.   U-3 showing  classification of the employees incline us  to  the view  taken  by  the  Tribunal.   The  years  in  which  the employees have joined service were all staggered and even if they retire by completion of their full service the pressure on   the  Company’s  financial  resources  is  pretty   well uniformally  spread  out.   In dealing  with  the  financial capacity  of an undertaking to bear the burden it would  not be  appropriate to approach its capacity to bear the  burden from an investors point of view.  The overall picture of the soundness  of the Undertaking and its future prospects  must be  taken into account.  In’ this regard Gajendragadkar,  J. as he then was in the Bharatkhand Textile Mfg.  Co. Ltd.& Ors.  v. The Textile Labour Association, Ahmedabad(1),  said

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at page 342-343               "It  is  not  disputed  that  the  benefit  of               gratuity  is in the nature of retiral  benefit               and there can be no doubt that before  framing               a scheme for gratuity industrial  adjudication               has  to  take into  account  several  relevant               facts;   the   financial  condition   of   the               employer,  his  profit  making  capacity,  the               profits earned by him in the past, the  extent               of his reserves and the chances of his  reple-               nishing them as well as the claim for  capital               invested  by  him, these  and  other  material               considerations may have to be borne in mind in               determining the terms of the gratuity scheme". In  our view the financial position of the Company  is  such that  the  implementation of the scheme of gratuity  is  not likely  to  place an undue or unreasonable burden  upon  the Company. (1)[1960] 3 S.C.R. 329. 813 There is also in our view no validity in the criticism  that the scheme is difficult if not impossible to implement.   It is therefore necessary to examine the scheme proposed by the Tribunal which is given below:               1.On  the  death of an employee  while  in               service  of  the Company or  on  his  becoming               physically   or  mentally  incapacitated   for               further   service  in  the  Company,   or   on               voluntary retirement or resignation of an  em-               ployee  after ten years of continuous  service               in the Company; he or his heirs, executors  or               nominees as the case may be, shall be paid  as               gratuity   21  days’  basic  wages  for   each               completed  year  of  service,  subject  to   a               maximum of 390 days basic wages.               2.On  termination  of the services  of  an               employee  by the Company after five years  but               less  than ten years of continuous service  in               the  Company,  the employee shall be  paid  as               gratuity  a  sum equivalent to 13  days  basic               wages  for each completed year of  service  in               addition to retrenchment compensation that may               be  admissible  to him  under  the  Industrial               Disputes Act, 1947.               3.On  termination  of the services  of  an               employee  by  the Company after ten  years  of               continuous   service  in  the   Company;   the               employee  shall  be  paid as  gratuity  a  sum               equivalent  to 17 days’ basic wages  for  each               completed  year  of  service  in  addition  to               retrenchment   compensation   that   may    be               admissible   to  him  under   the   Industrial               Disputes Act, 1947.               4.An  employee  dismissed  for  misconduct               will  not be disentitled to gratuity,  but  in               the   case  of  an  employee   discharged   or               dismissed  for  misconduct  causing  financial               loss to the Company, the losS most be deducted               and the balance shall be paid to the  employee               towards gratuity.               5.The  basic  wages  for  the  purpose  of               gratuity  shall  be the average of  the  basic               wages  of  an employee exclusive  of  dearness               allowance  during the period of twelve  months               immediately preceding the event entitling  him

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             to gratuity. With  reference  to,  clause 5 it is  said  that  while  the Tribunal   has  prescribed  a  consolidated   wage   without indicating  what portion of that wage is the basic wage  and what portion the dearness allowance, the payment of gratuity based  on  an  average of the basic  wages  of  an  employee exclusive of dearness allowance is 814 impossible  to  implement.  In our view this  contention  is misconceived  for  the reason that while  the  Tribunal  has awarded a consolidated wage without specifying what part  of it is the basic wage and what part dearness allowance,  that consolidated  wage is the basic wage at a future  date  when the scheme of gratuity comes into force namely in 1968.  The Tribunal  when it formulated the scheme was fully  aware  of the  fact that there would only be a consolidated wage  from thence  onwards  till new wage scales are  fixed  when  most likely basic wage and harness allowance will ,be  separately fixed,  having  regard to the price index existing  at  that time.   We  have not been referred to any decision  of  this ,Court  laying  down  that a  consolidated  wage  cannot  be treated ,as a basic wage in any subsequent year to the  year in which it has been prescribed.  On the other hand there is warrant  for the proposition that gratuity can be  fixed  on the basis of a consolidated wage.  In Hindustan  Antibiotics Ltd. v. The Workmen & Ors.(1), it was observed that gratuity is an additional form of relief for the workers to fall back upon  and  it would depend on the facts of each case  as  to whether the scheme, as prepared by the Tribunal was fair and equitable. The  case of Management, Ghaziabad Engineering Co. (P)  Ltd. v.  Its Workmen(2), has been cited to show that the  quantum ,of  gratuity is only related to the basic wage and  not  to the consolidated wage but in our view this decision does not support  that contention.  In that case what this Court  was considering  was the gratuity applicable to the workmen  who are  being  paid wages consisting of  two  components-basic wages  and 5001,, of the basic wages as dearness  allowance. It also appears that prior to 1960 the Company used to  make a  consolidated payment without specifying any basic  salary or  dearness allowance but since 1960 in  every  appointment letter it was expressly recited that the ,employees will get a  consolidated  salary consisting of 2/3 of the  salary  as basic  wages and the balance as dearness allowance.  In  the context  of these facts the observations of Shah, J.  as  he then was, at page 627 upon which reliance is being placed on behalf  of the Appellant in support of the proposition  that gratuity must be related to basic wage should be understood. Shah J. said :               "There is no clear evidence on the record, and               precedents have been brought to our notice, to               justify a departure from the normal rule  that               the quantum of gratuity is related not to  the               consolidated  wage  packet but  to  the  basic               wage".               On  the other hand the sentences that  follows               immediately do not justify any rigid principle               relating  gratuity  to  basic  wage.   It  was               ,observed               (1)   [1967] 1 S.C.R. 652.               (2)   [1970] 1 S.C.R. 622.               815               "A  departure  may be made  from  tile  normal               rule,  if  there be some  strong  evidence  or               precedent  in the industry, or conduct of  the

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             employer or other exceptional circumstances to               justify  that course.  In the absence of  such               evidence,we  are  of the  view  that  gratuity               should be related to the basic wage and not to               the consolidated wage packet". In  that case as the basic wage and the, dearness  allowance was ascertainable because dearness allowance was  prescribed as  a percentage of the basic wage there was no warrant  for relating gratuity to the consolidated wage. In  Delhi Cloth & General Mills Co. Ltd. v. Workmen  &  Ors. etc.(1),  Shah,  J. after a review of the various  cases  in which  the  claim  of gratuity in  relation  either  to  the consolidated  wage  or basic wage was  considered,  admitted that it was not easy to extractany principle from  these cases, because they were conflicting. It was also  pointed out that in Hindustan Antibiotics Ltd. v.Their Workmen(2), the Tribunal had awarded a scheme for  gratuity related to consolidated wages and that order was  confirmed. Even in Remington Band of India Ltd. v. The Workmen(3),  the claim for gratuity being based on consolidated wages  though challenged  was  accepted.   It appears to us  that  a  more reasonable  way of reconciling this conflict is, that  while no  doubt the general rule is that gratuity must be  related to  the  basic wage, in cases where the wages are  not  very high  and  a consolidated wage has been  fixed  taking  into account the dearness allowance, the schemes of gratuity  may be related to the consolidated wage, which will be the basic wage  in  subsequent year.  As we pointed  out  earlier  the consolidated wage will be the basic wage in subsequent years and at any future date having regard to the price index, the claim of the workmen either for a rise in the wage based  on the  cost  of  living index or for  the  grant  of  separate dearness  allowance to neutralise that rise is bound  to  be considered and adjudicated. Lastly  the scheme is challenged as unfair  and  incongruous because  those  that retire are given larger  benefits  than those  who  are retrenched.  But this criticism  is  equally unwarranted.  In the first clause of the scheme a worker who voluntarily retires or resigns after 10 years of  continuous service  is to be paid as gratuity 21 days basic  wages  for each  completed year of service subject to a maximum of  390 days  basic wages, while, under clause 3, on termination  of services of an employee after 10 years of continuous service he  shall be paid as gratuity a sum. equivalent to  17  days basic wages for each completed year.  The difference between the gratuity payable to persons who resign (1)  [1969] 2 S.C.R. 307/. (2) [1967] 1 S.C.R. 652. (3) [1968] 1 L.L.J. 542 816 or  retire voluntarily and those services are terminated  is that the latter will receive in addition to the gratuity the retrenchment  compensation  admissible  to  him  under   the Industrial Disputes Act, while in the case of the former  he will not be entitled to it.  The scheme, itself in clause  3 makes this specific distinction.  We do not think that there is  any  justification for the several  criticisms  directed against  this  scheme.  In our view the scheme is  not  only reasonable  but fair having regard to the interests  of  the workmen and the financial capacity of the industry. In  the result both the Appeals are partly allowed  and  the Award is modified in respect of two items (1) that a payment of  bonus of Rs. 20,768/50 be made instead of  Rs.  42,783/- awarded  by the Tribunal, and (2) subject to the  directions already  given there shall be a fitment of the wages of  the

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workers  in  the new scales awarded by  the  Tribunal  after taking  into account one increment for every three years  of completed  service up to the date of the statement of  claim i.e., 15th January, 1966.  In the circumstances the  parties will bear their own costs in each of the Appeals. G.C. Appeals partly allowed. 817